29 September 1989 Income Tax Severed Letter HBW 8701-6B

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Dear XXX

On April 24, 1989, this department wrote to XXX concerning the Indian Remission Order. The purpose of this letter is to further clarify some of the counts made in that letter and outline what positions we have adopted relative to the taxation of Indians.

Determining the correct method of taxing Indians has over the years proven to be a difficult task. At one point the residence of the Indian was considered to have been the deciding factor. However, that position was abandoned and until the Nowegijick case an Indian was not taxed on income earned on a reserve but was subject to tax on income earned off a reserve.

In 1983 the Supreme Court of Canada found in Nowegijick v The Queen [[1983] C.T.C. 20] ... "that treaties and statutes relating to Indians should be liberally construed and doubtful expressions resolved in favour of the Indian. If the statute contains language which can reasonably be construed to confer tax exemption, that construction ... is to be favoured over a more technical construction which might be available to deny exemption".

The Court found that the taxable income was personal property and was paid by a company whose head office was on the reserve. That being so, it was properly exempt pursuant to section 87 of the Indian Act as being personal property on a reserve. Where the work is performed is not relevant, but rather where the employer is situated.

As you know, a remission order was sponsored by the Minister of Indian and Northern Affairs which had the effect of continuing the practise of exempting from tax employment income earned by an Indian on a reserve regardless of the fact that the employer was not on the reserve.

The remission order was to apply to the taxation years 1983, 1984 and 1985, and in September 1985 we wrote to all of the provinces asking that they pass comparable remission orders to govern the disposition of the provincial tax. Generally, there was little response to the request, and no evident opposition to the proposition, although it had been suggested that an order was unnecessary in the circumstances.

In 1988 a further order-in-council was issued, extending the effect of the earlier order to the 1986 and 1987 taxation years, and the Department has continued to administer the collection of tax as envisaged by the initial order. It must be emphasized that we have not asked that the Indians make specific application to qualify under the orders. For the most part these orders merely legitimize the carrying on of past practise to exempt.

Contrary to what may have been expressed in our letter of April 24, 1989, we do not generally expect to receive individual requests and thus will continue to consider the appropriate income tax, which otherwise might have been collected, to be remitted. We should emphasize that generally there will be no refunds except in the most exceptional cases, because nothing would have been collected in the first instance.

We do not know what amount of tax is involved as the result of the remission, due to the lack of previous assessments, but we do not believe that it is significant. The people who are subject to the remission are not in the higher tax brackets, and it is a recognition of this that is implicit in the remission order. While the order reflects government policy, we believe that it is also in keeping with the spirit of the decision in the Nowegijick case.

We hope that these comments will be of assistance to you in understanding our position.